Page 122 - The TEFRA Partnership Audit Rules Repeal:

ALI CLE Live Video Webcast / “The TEFRA Partnership Audit Rules Repeal: Partnership and Partner Impacts” June 7, 2016, Jerald David August and Terence Floyd Cuff
b. Requirements of Election Out
The rules for election out are stated Section 6221(b). Election out requires:
 A properly filed election for the taxable year.55
 The partnership is required to provide Schedules K-1 to 100 or
fewer partners under Section 6031(b).56
 Each partner must be a qualifying partner.57
c. Qualifying Partner for Election Out.
A qualifying partner is one from among these partners:
 an individual,
 a C corporation,
 any foreign entity that would be treated as a C corporation were it domestic,
 an S corporation, or
 an estate of a deceased partner.58
The qualifying partners may be expanded in regulations. The scope of qualifying partners might be extended to partnerships, disregarded entities, and trusts.
A partnership with a foreign entity as a partner can qualify for election out if the foreign entity has elected to be, or is, treated as a per se corporation under the check-the-box rules. Unlike the limitations under the small partnership exception to TEFRA, a nonresident individual was not a qualifying partner. You could have under the Bipartisan Budget Act of 2015 a partnership of 100 or fewer foreign individuals from countries all over the world and still elect out on an annual basis of the consolidated regime.59 Query: Did Congress intend this result? Individual partner audits of partnership activities in 100 separate audits of foreign partners could be inconvenient for the Internal Revenue Service.
55 I.R.C. § 6221(b)(1)(A).
56 I.R.C. § 6221(b)(1)(B).
57 I.R.C. § 6221(b)(1)(C).
58 I.R.C. § 6221(b)(1)(C).
59 See I.R.C. § 6221(b)(1)(C).
© Terence Floyd Cuff and Jerald David August, 2016
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